Problem:
Hann, Murphy, and Ryan have operated a retail furniture store for the past 30 years. Their business has been unprofitable for several years, since several large discount furniture stores opened in thier sales territory. The partners recognize that they will be unable to compete with the larger chain stores and decide that since all the partners are near retirement, they should liquidate their business before it is necessary to declare bankruptcy. Account balances just before the liquidation process began were as follows:
Cash $10,000 Liabilities 110,000
Other Assets 218,000 Hann, Capital 50,000
Murphey Capital 42,000
Ryan, Capital 26,000
Total Assets 228,000 Total Liabilities 228,000
The partners share profits in the ratio of 5:3:2, respectively.
Rather than selling all the assets in a forced liquidation and incurring selling expenses, the partners agree that some of the noncash assets may be withdrawn in partial settlement of their capital interest. The partners agree that if the market value of a withdrawn asset is less than book vlaue, the difference should be allocated to all partners in their loss ratio. If market value is greater than book value, the asset is to be adjusted to its market value before recording the withdrawal. All the partners are personally slovent and can make additional cash investment in the partnership up to $20,000 each. The following is a schedule of transactions that occurred during 2008 in the liquidation process.
Mar 15, 2008 During liquidation sale, noncash assets with a book value of $90,000 were sold for $80,000
Mar 16, 2008 Sold accounts receivable with a book value of $30,000 to a factory for $26,000
Mar 16, 2008 Paid all recorded partnership creditors.
Mar 18, 2008 Distributed all but $1,000 of available cash to partners
Mar 19,2008 Murphey withdrew from inventory furniture with a book vlaue of $10,000 and a market value of 13,000 to satisfy part of his capital interest
Mar 21,2008 Sold remainder of inventory with a book value of $50,000 to a
discount furniture store for $30,000 cash.
Mar 25, 2008 assigned for $12,000 cash the remaining term of the lease on the warehouse, the lease was accounted for as an operating lease.
Mar 25,2008 distributed all available cash to partners
April 1, 2008 Hann agreed to accept two vehicles with a book value of $10,000
and a market value of $8,000 in partial settlement of his capital interest
April 5, 2008 All remaining assets were sold for $4,000
April 6, 2008 Recieved additional cash from partners with debit capital balances
April 6, 2008 Distributed available cash to partners
Prepare a schedule of partnership realization and liquidation in accordance with the sequence of the foregoing events. Compute a safe payment to support your cash distribution to partners.